Metro Mining on fast track to bauxite production, increase in...

Metro Mining on fast track to bauxite production, increase in reserves
Wednesday, June 10, 2015 by Proactive Investors


Metro Mining is on a roll after announcing a 398% increase in its ore reserve at the Bauxite Hills Project from 12.1 million tonnes to 48.2 million tonnes, enough for a 27 year mine life.

Metro Mining (ASX:MMI) is on a roll after announcing a 398% increase in its ore reserve at the Bauxite Hills Project from 12.1 million tonnes to 48.2 million tonnes, enough for a 27 year mine life.

However, even better news, the project at Cape York in Queensland could be in construction mode in second quarter 2016 and producing by fourth quarter 2016.

This would be at a rate of up to 2 million tonnes of Direct Shipping Ore (DSO) per year.

The Bauxite Hills Project is situated 95 kilometres north of Weipa on Queensland’s Cape York Peninsula and five kilometres south-east of the port at Skardon River.

The project has a high grade total alumina of 50.2% and reactive silica of 6.3%, which is typical of Western Cape York bauxite deposits destined for export.

An update of the geological model resulted in a resource upgrade.

Based on this, the resource at Bauxite Hills looks suitable for Direct Shipping Ore that is planned to be transhipped via the Skardon River.

DSO allows the development of a mine with lower capital and lower operating costs.


Mining & Transport

Bauxite mining is usually a very simple quarrying operation, clearing minimal vegetation and overburden of around 0.5 metres and the DSO Bauxite Horizon at the 1.75 metre depth level.

In terms of transportation, the ore would be hauled and trucked 5-10 kilometres to a stockpile & barge loading area. Then the ore would be barged 10 kilometres down the Skardon River ready to be transhipped to a bulk carrier for export.

The location of the project at Cape York is ideal as it is located close to international shipping routes with low relative freight costs to China.

Cape York’s high quality export grade bauxite with high alumina content and its characteristics are well known to Chinese and other international alumina refineries.


Bauxite Price

Bauxite has experienced strong price growth in the past decade, growing at a very strong 8% per annum. Price growth has been further supported by the Indonesian ban on raw material export in early 2014, resulting in demand outstripping supply.

Global growth in aluminium consumption led by China is forecasted by CM Group to drive bauxite prices higher until 2022.


Compelling Project Financial Returns and Economics

Sustaining Capex is A$18.1 million while Average Operating Cost (FOB) is A$26.7/tonne and an Average Price Received (FOB) based on A$55.3/tonne.

This would amount to a healthy Average Cash Margin (FOB) of A$28.6/tonne and an even healthier Average Annual Net Profit After Tax of A$37.9 million.

Construction Capex for 2016 is estimated at just $27.4 million, which is modest relative to the forecast revenues from an increasing bauxite price and the strong project metrics: (NPV of A$197 million) and 88% IRR from the recent feasibility study.

With cash of $4.6 million and no debt at March quarter end, it is all systems go for Metro Mining.


Permitting

The project resides in a previous mining region and outside any environmental exclusion zone and is known to enjoy positive local community engagement and support.

There is also a preferred right to negotiate process with Native Title owners underway. This is set to conclude in third quarter 2015.

The reality is a 2 million tonne per annum project scale enables a faster, more streamlined environmental approval process.


Off take

All important off-take discussions are understood to be progressing well with former Chairman of Traxys China Norman Ting, ensconced as General Manager Marketing, who has traded bauxite over many years.

China's Xinfa Group holds an eight per cent stake which controls one of the largest alumina-aluminium enterprises in China and could be expected to be in the mix for off take.

A recent study by CM Group indicated that Bauxite Hills’ product is suitable for low temperature refining process used in over 80% of China’s current refining capacity.


Analysis

There are significant price catalysts ahead for Metro Mining with its Bauxite Hills Project including:

- Definitive Feasibility Study Q3 2015
- Native Title Agreements Q4 2015
- Environmental Approvals Q4 2015
- Offtake Agreements Q4 2015
- Financing and funding Q1 2016
- Construction and pre-strip Q3 2016
- Production Q4 2016

The simplicity of bauxite mining and low disturbance of the mining area as well as a low capex, high margin development are favourable for Metro. Funding risk looks a less of a hurdle given the demand for bauxite from Asia and cornerstone investor Xinfa on the share register.

Metro Mining has been an outstanding share market performer gaining 304% since December 2014. With these milestones ahead and sitting within a strong bauxite demand sector, there would appear further growth in store in 2015/16.